V G Siddhartha: The Tangled Web 

In a shocking event, the founder of Cafe Coffee Day, V G Siddhartha, who is also the son-in-law of former Karnataka chief minister, S M Krishna, went missing from the Netravati Dam site near Mangalore on Monday.

While search operations continue unabated, a letter said to be written by Siddhartha, addressing the Coffee Day family and the board of directors came out in public. In the letter, he says that he failed to create the right profitable business model despite all efforts.

The authenticity of the letter is not known as there are claims that the signature is different from the one in the company’s annual report of 2018. An Income Tax Department source told this author, and the Department too shared a press statement in which it said that the authenticity of the note is not known and the signature does not tally with his signature as available in his annual reports.

According to the IT department, the probe into the case relating to Siddhartha and Cafe Coffee Day arose from an investigation that was being conducted on a prominent political leader of Karnataka. The probe was based on the evidence relating to financial transactions done by Cafe Coffee Day in a concealed manner.

During the probe, the IT department found that a person holding Singapore citizenship was in possession of unaccounted cash to the tune of Rs 1.2 crore. This person is alleged to have admitted that the money belonged to Siddhartha.

In the letter that is in circulation, Siddhartha has said that he was harassed by IT officials over their coercive blocking of the Mindtree deal and the subsequent taking possession of the Coffee Day shares.

In September 2017, Siddhartha had been accused of evading taxes, following which raids were conducted. An amount of Rs 650 crore of undeclared income was found from the Coffee Day chain and the IT department seized related documents as well.

IT department sources also say that during the search, after considering all the evidence that was gathered, Siddhartha admitted to unaccounted income of Rs 362.11 crore and Rs 118.02 crore in a sworn statement.

He then filed returns of income but did not mention the above undisclosed income as admitted in the sworn statement in both the cases, except for a sum of around Rs 35 crore in his individual case, the source also said. Even on the admitted sum, he has not paid the self-assessment tax of Rs 14.5 crore as quantified by him.

On 21 January 2019, news reports said that Siddhartha was planning to sell equity shares of Mindtree Ltd. held by him and his company immediately. Based on these reports a verification was carried out. The IT department found that Siddhartha and Coffee Day Enterprise Ltd. together held nearly 21 per cent of the shareholding in Mindtree Ltd. Further it was found that the deal was to be finalised in January 2019.

The IT department source says that the tax effect, along with the interest and penalty, based on the outcome of the search action ran into hundreds of crores. Moreover, there was no application filed by the assessee concerned before the assessing officer — this is required as per the statutory provision — before transferring any assets while Income Tax proceedings are pending.

The IT department in a bid to protect the interest of revenue, made a provisional attachment of 74,90,000 shares of Mindtree Ltd. owned by  Siddhartha and M/s Coffee Day Enterprises Ltd. under Section 281B of the Income Tax Act. Such action is a normal requirement to protect the interest of revenue.

Subsequently, a request letter was filed by Siddhartha to release the Mindtree shares and in turn he offered as security other shares of Coffee Day against the demand. The IT department accepted this request and the attachment of the Mindtree shares were revoked on 13 February 2019.

There was a specific condition that the sale proceeds would be used only for repayment of those loans availed against the Mindtree Ltd shares by opening an escrow account and  the remaining balance amount would be provided for attachment under Section 281B against the tax liability that would arise.

Siddhartha transferred the Mindtree shares to Larsen & Toubro (L&T) on 28 April 2019 and received around Rs 3,200 crore. Out of this he repaid loans of around Rs 3,000 crore. He also paid the expenses related to the transfer, around Rs 154 crore, and a balance of Rs 46 crore was paid towards the first instalment of advance tax of estimated MAT liability of around Rs 300 crore in the case of the shares relating to Coffee Day.

IT department officials say that the provisional attachment was made to protect the interest of revenue as admitted by Siddhartha during the search action. The department has only acted as per the provisions of the Income Tax Act, the official also clarified, while denying any kind of harassment as has been alleged.

CNBC TV while quoting sources close to Siddhartha say that the Tax Department had attached Mindtree shares held by him without sending him a notice. There was no demand made by the department before attaching the shares. Siddhartha went back and forth with the tax department for almost six weeks. We are shocked that a day after the shares were released, the department attached Coffee Day shares, the report also said.